7Digital : 2019 Annual Report

digital Group plc

Contents

Overview

Chairman's Statement

Chief Executive Officer's Review

Chief Financial Officer's Review

Strategic Report

Section Statement

Board of Directors

Directors' Report

Corporate Governance Statement

Directors' Remuneration Report

Independent Auditors' Report to the Members of digital Group plc

Consolidated Income Statement and Statement of Comprehensive Income for the Group Consolidated Statement of Financial Position

Consolidated Cash Flow Statement

Consolidated Statement of Changes in Equity

Notes to the Consolidated Financial Statements

Parent Company Statement of Financial Position

Parent Company Statement of Changes in Equity

Notes to Parent Company Financial Statements

General Information and Advisors

digital Group PLC Annual Report and Accounts

digital Group plc

OVERVIEW

NEW BOARD, INVESTMENT AND MANAGEMENT CHANGES

Newly appointed board leaders Tamir Koch and David Lazarus widely recognised for technology entrepreneurship and executive leadership

. million funding in , in cash and conversion of shareholders loans, to reposition the company, stabilise the business and secure future growth Paul Langworthy promoted to CEO and Michael Juskiewicz appointed CFO to oversee implementation of new strategy

SUCCESSFULLY EXECUTING THE NEW STRATEGY

Repositioned digital as a music technology company and the global leader in B B music solutions

Streamlining the technology offering - supporting both established markets and new business models and verticals with greater profit margins

Successfully delivered annualised cost savings of over . million, reducing

operational cost run rate by over since beginning of the year

New contract wins, contract expansions and renewals show growing demand for digital music services in new entertainment formats

digital Group plc

CHAIRMAN'S STATEMENT

digital Group PLC Annual Report and Accounts

digital Group plc

CHIEF EXECUTIVE OFFICER'S REVIEW

digital Group PLC Annual Report and Accounts

digital Group plc

CHIEF EXECUTIVE OFFICER'S REVIEW

digital's leading technology offering, global music catalogue and industry expertise makes the Group well placed to capitalise on the growing demand for digital music services to improve existing customer offerings and power new entertainment formats. With financially supportive majority shareholders and an extensive pipeline of deals, we are on track to achieve operational

profitability in the second half of and deliver value for our shareholders.

digital Group PLC Annual Report and Accounts

digital Group plc

CHIEF FINANCIAL OFFICER'S REVIEW

digital Group PLC Annual Report and Accounts

digital Group plc

CHIEF FINANCIAL OFFICER'S REVIEW

Gross Margin

digital Group PLC Annual Report and Accounts

digital Group plc

STRATEGIC REPORT

Strategy and Business model

digital is the global leader in B B end-to-end digital music solutions. The core of our business is the provision of robust and scalable technical infrastructure combined with extensive global music rights used to create music streaming and radio services for a diverse range of customers - including consumer and social media brands, online fitness companies, mobile carriers, broadcasters, automotive systems, record labels and retailers. We also offer radio production and music curation services.

Our strategy is to grow revenues, profitability and shareholder returns through:

• Offering flexible, productised, end-to-end music solutions;
• Increasing the number of clients we serve in strategic, well-funded market verticals;
• Improving the financial quality of our business by driving recurring SaaS and PaaS revenues;
• Expanding and leveraging our geographic coverage;
• Continued investment in market leading technology to meet shifting technology trends, user consumption, and client needs;
• Applying strict control of our cost base to ensure that revenue growth is quickly reflected in improved overall Group profitability; and
• Establishing and maintaining a partner channel program for scaling sales into the identified target market verticals.

digital's core platform provides its customers with access to cloud-based software. digital operates business-to-business technology and music services Licensing revenue , business-to-consumer music services under the digital brand Content revenue , and content production under the digital Creative brand.

Licensing

digital's core business is to provide an API for third parties that wish to create digital music services, either standalone or bundled within their own device or product offering. digital's platform simplifies access to music by offering a combination of a licensed music catalogue alongside the cloud-based technology platform and client- side software, being software hosted by digital's clients. These are needed to create on-demand music streaming and download services, radio style services and other services. The digital platform is open, with open-source code to reduce complexity and time to market for its potential customers and can be used for building products on any type of connected device

The Group's revised strategy has seen it aggressively target enterprise customers with large, existing consumer bases of their own. digital's primary offering to these

customers would be an API-based"turn-key" music services platform, which enterprises can leverage to service any model or business needs.

Typically, customers pay a set-up fee and monthly licence fees for using the digital platform and digital will also take a revenue share of any music-based revenue generated by the service, including transaction or subscription revenues.

In addition to providing an open API-based platform from which third parties can build their own services digital has obtained music licences in many countries in regions including North America, Latin America, Europe, Asia-Pacific and Africa. These licences are obtained from hundreds of individual record labels, music publishers and music collecting societies. Music licences vary from country to country and by usage type.

catalogue of high-quality digital music from the major labels and independent aggregators in Europe, North America and parts of Asia-Pacific. Users have the option to download their purchases as zip files or by using the digital download manager to input directly into their media player of choice. digital has apps for different devices as well as an HTML , mobile optimised web store.

commissions from BBC's national radio networks as well as one-off commissions from other broadcasters, such as Sky Television.

digital Group PLC Annual Report and Accounts

digital Group plc

STRATEGIC REPORT

There is a risk that the global pandemic could slow the anticipated demand for the Group's services or that customers may terminate their contracts. However, with the execution of the revised strategy, the directors believe that the Group is well placed to grow the business, even with a focus on reducing costs.

The Group is a "b b" provider of services to customers that may be in competition with companies that are seen as industry leaders. It is possible that developments by either the direct competition, or the competitors to customers, will render the Group's

current and proposed products and services obsolete. However, digital's position in the market and strong relationship with the

major record companies mean we have huge support to help grow the market by significantly lowering the barriers to entry for new services and formats for music consumption outside of the . All You Can Eat subscription service. The Group's product roadmap is regularly evaluated against the developing marketplace to ensure that we remain competitive.

The market in which the Group operates has seen a number of significant changes, such as the shift from physical sales, to digital downloads, and then onto streaming. The Group's competitors, or the competitors of the Group's customers, may announce or develop new products, services or enhancements that better meet the needs of customers or the end consumers. Further, new competitors, or alliances among competitors, could emerge. Increased competition may cause price reductions, reduced gross margins and loss of market share, any of which could have a material adverse effect on the Group's business, financial condition and results of operations.

The directors believe that the overall market for the Group's products and services will continue to grow and that its success will be driven by how well it can execute in the market. The Group subscribes to the leading music market research service MIDiA and holds regular meetings with their leading analyst to monitor trends in the marketplace and therefore anticipate developments. There can, however, be no assurance that growth in the market for its products and services will occur at the rate envisaged by the Group.

digital Group PLC Annual Report and Accounts

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STRATEGIC REPORT

Section

Section of the Companies Act requires that a director of the Group is managing in the best interests of all stakeholders -

Customers, Suppliers, Employees and Shareholders.

In the spirit of above, the Directors of digital, strive to maintain a reputation for high but fair standards in the best interest of its stakeholders.

Our primary focus is on our customers and here we regard our relationships and channels of communications of paramount importance. We operate in a sensitive environment between Right holders and Service Providers, Commercial Entities and Brands, and as such ensure that we meet all the standards required by our Customers and our Suppliers, such as Privacy, Information Governance, Reporting and Rights Compliance.

The Board is focused on delivering value for Shareholders underpinned by motivated Employees delivering ahead of the curve technology solutions to market and above average delivery of service to customers. In achieving the foregoing, the Group focuses on continued strategic innovation via a policy of market validation and product development funded through organic investment plus capital raises, as agreed at shareholder meetings, and supported by clearly communicated vision and direction.

In our communication to Shareholders the Board is clear in terms of its short, medium and long-term strategy and maintains an open-door approach to Shareholders seeking additional clarity on any issue. The Board release notices on a regular basis informing Shareholders of developments in areas of business progress, non-confidential strategic decisions and any change to Group policy. Risks and opportunities are set out in this strategic review.

Employees

The Group is small and, while clear management structures are in place, all Employees, if required, have direct access to the Executive Directors daily and, if necessary, to the Chairman. The Group retains HR services to ensure the fair and equitable treatment of Employees. The Group promotes a policy of promoting from within supported by training and mentorship. We encourage diverse thinking and recognise strengths and contribution to the business. Finally, we recognise that as a responsible

organisation we identify and deliver on our social responsibility. In late , we have established an approach to engaging with

colleagues to take their perspectives into account in our decision making and planning and share with them our strategy and

• of employees say that they feel their colleagues are at a "high" or "good" engagement
• of employees say they feel valued
• feel that their work fits their strengths

The results from our employee opinion survey help shape how we run the business and the focus on areas that will make a real difference to our colleagues, such as managing stress, networking cross-company, and take advantage of reviews to improve cross-level communication. Finally, we recognise that as a responsible organisation we identify and deliver on our social responsibility.

Customers

We engage and build our relationships with our customers in a number of ways, from tech- and product-driven updates that improve efficiency and transparency in operations and standards of performance, to our face-to-face interactions with our "white

glove" standard customer service. In the last months, we developed new services to improve our engagement with clients

including quarterly business reviews to report on account performance, user and account level analytics, technology roadmap, and new partnerships supported. In addition, we have introduced a questionnaire to gather important feedback from the QBR and gain further insight into digital's performance to further deliver on specific customer interests.

Fundraising

During the year, as detailed in the Chief Financial Officer's Review on pages to , the Group raised . m through funding; . m of which was received in cash and . m was funded by the conversion of the principal and accrued interest balances of the Shareholder loans.

digital Group PLC Annual Report and Accounts

digital Group plc

STRATEGIC REPORT

Section

Cost control and cash management

As part of the comprehensive cost reduction programme and the Group reorganisation, headcount was reduced through employee redundancies and termination of contractors. Operational expenses were further reduced by the rationalisation of external vendors.

Approved by the Board of Directors and signed on behalf of the Board,

Paul Langworthy

CEO

Lower Lock, Water Lane, London, NW JZ

September

digital Group PLC Annual Report and Accounts

digital Group plc

GOVERNANCE

Board of Directors

EXECUTIVE DIRECTORS presently in office :

repositioning of the Group as a global leader in B B music solutions. Under his leadership, the Group has refocussed to capitalize on the flexibility and scalability of the digital platform

technology and catalogue to power unique and diversified customer experiences on behalf of enterprises and brands in the music streaming space. Previously COO, Paul was responsible for organizing the business to meet its strategic goals and objectives. Paul joined digital in April and has become a driving force in the Group s operations. Initially managing the Group s content supply chain, he later took leadership of digital s Client Operations teams. Paul also oversaw operations within the Production businesses that became part of digital Group plc following the

merger with UBC Media. With years of experience in digital and content operations, Paul has worked across all aspects of the digital supply chain including metadata, rights, scheduling, asset management and distribution. Prior to digital, Paul oversaw Content Operations at digital TV service YouView. He also spent over nine years with Universal Music Group within the label s

Michael is an experienced technology, media and finance executive who currently also holds the

position of CFO Head of Corporate Development at eMusic. Michael spent over years working

in investment banking, mergers acquisitions, and capital markets at the TMT groups of Bank of America Merrill Lynch, Nomura, and Cyndx. Michael has also acted as interim CFO of Export Now, a cross border focused e-commerce company, and gained experience working for the international accounting firm BDO. He holds an MBA from the University of Chicago Booth School of Business and a Bachelor of Science with a double major in both Accounting and Economics from Tel Aviv

.

NON-EXECUTIVE DIRECTORS presently in office :

Tamir Koch, Chair (appointed July )

Koch is President TriPlay Inc. an online music and audiobook store and brand which started trading

in and is focused on discovery and sales of independent music and artists. Most recently Tamir

has led the eMusic Blockchain Project, seeking to provide a decentralised approach to music distribution and rights management to facilitate the utilisation of blockchain within the music industry. Tamir has previously founded several successful start-ups including Orca Interactive and

David is an industrialist and international entrepreneur. David spent six years at Lloyds of London as an accredited Lloyds Broker attending to Insurance and Re-Insurance. David is currently an Executive Director of the RAM Hand-to-Hand Couriers Group, a leader in the Courier, Logistics and Express

the Young Presidents Organisation. David has been involved in several international businesses, including having knowledge of the various investments of Magic.

digital Group PLC Annual Report and Accounts

digital Group plc

GOVERNANCE

Board of Directors

INDEPENDENT NON-EXECUTIVE DIRECTORS presently in office :

Mark Foster

Mark has spent much of his career in the music industry, in a succession of Marketing and International roles for all three major labels, including time in Paris as Marketing Director for Warner Music France. Returning to London as Vice President of European Marketing, Foster oversaw pan-regional marketing strategy before founding Warner Music International's New Media Division. After leaving Warner, he launched and ran Deezer in the UK and Ireland, then was

appointed CEO for Arts Alliance, a leading global player in Event Cinema. Since , he has developed a portfolio of NED and chair roles for a range of businesses, including highly respected entertainment analysts MIDiA Research, and has led the digital transformation strategy for Moat Homes, a major Housing Association. In addition, he acts as advisor and brand ambassador for a number of start-ups and scale-ups in the digital entertainment and creative industries.

Helen Patricia Gilder (appointed February )

Helen brings a wealth of experience from her time as CFO at AIM-listed ZOO Digital Group plc, where she was part of the team taking the business from tech start up to success in the

international entertainment industry. Since leaving ZOO in Helen has built a portfolio of NED

and advisory roles in a range of businesses and is chairperson of a small charity. Helen qualified

PREVIOUS EXECUTIVE DIRECTORS who served during part of the year :

John has an extensive track record, specialising in building early and mid-stage technology companies. His most recent role was as CEO of Arts Alliance Media where he established the company as the undisputed leader in operational support software for the cinema industry, before managing the successful sale to Luxin Rio of China. Prior to that, John was in the Telecommunications sector where he held roles including CEO of Volubill and numerous senior positions with CGI and Intec Telecom Systems now CSG International .

She is an accomplished CFO with experience in building high-growth companies and managing strategic turnarounds. Julia has valuable expertise in business direction, financial strategy, debt and equity fundraising, investor and stakeholder relationship management, and M A management. Julia has held senior positions throughout the TMT, travel, construction, engineering and publishing sectors, including roles at AIM-listedAmino Technologies, lastminute.com Group, CSC Media and TV Travel Group, among others.

market for national sponsored programmes whilst at Piccadilly Radio, where he was Head of Programmes. Unique floated on the

London Stock Exchange as part of UBC Media Group plc with Simon as Chief Executive and in , UBC merged with digital via a

reverse takeover. Simon has been awarded a fellowship of the Radio Academy and is also a Non-executive Director at Melody VR

digital Group PLC Annual Report and Accounts

digital Group plc

GOVERNANCE

Board of Directors

and strategic experience within the heart of the nascent digital music and consumer technology businesses to the role. Prior to digital, Pete held key leadership roles at Imagination Technologies, including responsibility for content and consumer experiences across both the Imagination Technologies and PURE businesses. Before joining Imagination, Pete spent over a decade working for Warner Music Group, holding senior management positions in the company s International Marketing and Business Development teams.

PREVIOUS INDEPENDENT NON-EXECUTIVE DIRECTORS

who served during part of the year :

Eric is currently Chief Development Officer at InterDigital, Inc. Previously, he served as Senior Vice President, Corporate Development at Dolby Laboratories, Inc., where he oversaw corporate development, mergers and acquisitions activities, and corporate strategy. Prior to that, Eric was formerly a Managing Director and senior member of the technology investment banking team at Cowen and Company. Eric, held the position of Managing Director at J.P.Morgan and also worked for years at Credit Suisse First Boston. Eric holds a BS degree from Brown University and an MBA degree from Stanford University.

Europe. Anne is currently the CEO of Freespee, the conversation platform company. Previously, Anne was CEO of Iron Group and Iron Capital an investment fund and payment enabler in the subscription economy. Before that Anne was the Managing Director EMEA for Videology, one of world's largest ad technology platforms where she drove expansion in over countries in just under years and was Global Director of Reed Elsevier, responsible for the B B Entertainment Division, which included leading events

digital Group PLC Annual Report and Accounts

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GOVERNANCE

Directors' Report

Report constitute the Business Review. The Business Review has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for these strategies to succeed.

The Business Review contains certain forward-looking statements. These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

Results and dividends

The Group's financial results for the year are shown in the Consolidated Income Statement on page . As in the previous year, the

Directors' indemnities

The Group has made qualifying third-party indemnity provisions for the benefit of its directors that were made during the year and remain in force at the date of this report. Directors' and officers' indemnity insurance with an annual limit of million is maintained.

Capital structure

The Group is primarily funded through readily available cash and working capital management.

Details of the authorised and issued share capital, together with details of the movements in the Company's issued share capital during the year, are shown in note .

During , the Company carried out a Capital subdivision of shares. This created new class of Ordinary . p shares that carry

full voting rights; and Deferred . p shares, along with the existing Deferred p shares, that carry limited voting rights. The Ordinary shares carry no right to fixed income. Each Ordinary share carries the right to one vote at general meetings of the Company. Details of the share capital can be found in note .

There are no specific restrictions on the size of a holding or on the transfer of shares, which are both governed by the general provisions of the Articles of Association and prevailing legislation. The Directors are not aware of any agreements between holders of the Company's shares that may result in restrictions on the transfer of securities or on voting rights. Details of employee share schemes are set out in note .

No person has any special right of control over the Company's share capital and all issued shares are fully paid.

digital Group PLC Annual Report and Accounts

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GOVERNANCE

Directors' Report

(continued)

With regards to the appointment and replacement of directors, the Company is governed by its Articles of Association, the

Companies Act and related legislation. The Articles themselves may be amended by special resolution of the shareholders.

The powers of directors are described in the Main Board Terms of Reference, copies of which are available on request and the Corporate Governance Statement on pages to .

Please refer to the post balance sheet note .

Financial risk management

Consideration of principal risks and uncertainties are included on pages to of the Strategic Report including the management of financial risks. These are also outlined further in note .

Re-election of directors

The directors who retire by rotation in accordance with the Articles of Association will offer themselves for re-election at the Company's Annual General Meeting "AGM" . The Board has considered the requirements of the QCA Corporate Governance Code in respect of these matters and believes that these members continue to be effective and to demonstrate their commitment to their role, the Board and the Group. Brief particulars of all directors can be found on pages to .

Going concern

requirements of the Group and support immediate and medium term commercial growth opportunities, in particular within home fitness, artist monetisation, and social media.

Background to and reasons for the placing and subscription

The music industry is undergoing a period of change and opportunity whereby revenue sources are changing. and growing. Whereas five years ago revenues were dominated mainly by music sales and live performances, today streaming has displaced

download music sales and COVID- has shut down live performances for much of and is likely to continue to impact live performances in the medium term. In addition, as music streaming has gained in popularity, music listening on social video platforms has begun to outpace DSP streaming services.

digital has an advanced, scalable, cloud-based platform and the Directors believe that the Company is positioned to take advantage of new sources of growth brought on by the changing industry as well as the new opportunities and models accelerated by the COVID- pandemic. This is supported by a number of renewals and new contracts over the last year, including with Triller,

eMusic and a global technology company in August . In particular digital has identified potentially significant emerging opportunities within social media, home fitness and artist monetisation channels.

Social Media

Music is becoming the driving force behind the growth of user-generated content UGC social media platforms and the global success of Tik Tok is shifting the paradigm in how fans discover, share and create music. The Directors believe that social media enterprises will continue to develop new models to extend their reach and in doing so will need a partner in providing new user experiences.

digital is able to provide access to its global catalogue, platform scale, rights and reporting to serve the sizeable and rapidly- growing user demand for world-wide social enterprises. Its platform enables users of social media platforms to access, sample and stream from its global catalogue while also ensuring accurate reporting back to record labels and rights holders.

digital Group PLC Annual Report and Accounts

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GOVERNANCE

Directors' Report

(continued)

The Company recently announced a new contract with Triller and the Directors believe that the platform will be of interest to other social media enterprises as music is integrated into new services.

offerings like Peloton have popularised app-based training, and, as COVID- has closed gyms, there has been an accelerated shift to on-demand online fitness. This has presented a trend for which the Company has a strong product-market fit. The Directors also anticipate the pandemic will create interest from non-traditional companies in fitness and sport/leisure retail wanting to participate in digital music services to drive loyalty.

digital s offering is a total fitness solution that includes a pre-licensed fitness music catalogue, content delivery, reporting and rightsholder payments, curation and playback of playlists for recording live classes. The Directors expect to announce a platform/licensing contract with in-home cycling providers and have a pipeline of potential additional high-profile global companies.

create a platform that creates new ways for artists to engage with music fans and recoup the income lost from ticket sales. eMusic Live, a new livestream platform built to make online performances commercially viable for music artists, will appeal to artists, managers and labels looking for new ways to monetise music consumption through sponsorships, music and merchandise. eMusic

Live will be powered using digital s technology platform, which provides access to the Company s global catalogue of music tracks in standard and hi-res audio. As the platform expands it is expected to also utilise digital s expertise in B B music solutions and

flexible services, combined with eMusic s B C technology and functionality, to introduce new solutions for the live music industry. The platform will offer an integrated artist-specific digital storefront to enable artists to sell their music catalogue or promote their latest release, thereby facilitating more exposure for their music and more value from sales.

COVID

In March , the World Health Organisation declared a global pandemic due to the COVID- virus that has spread across the globe, causing different governments and countries to enforce restrictions on people movements, a stop to international travel, and other precautionary measures. This has had a widespread impact economically and a number of industries have been heavily impacted. This has resulted in impacts on certain industries and a more general need to consider whether budgets and targets previously set are realistic in light of these events.

volatility in the global financial markets. The UK now enters a transition period, being an intermediary arrangement covering matters like trade and border arrangements, citizens' rights and jurisdiction on matters including dispute resolution, taking account

and conclude a formal agreement between the UK and EU on the aforementioned matters.

The Group operates subsidiaries in many countries. The Directors currently deem that the effects of the UK's current transitional period outside the EU and the impact of ongoing discussions with the EU will not have a significant impact on the Group's operations due to the global geographical footprint of the business and the nature of is operations.

digital Group PLC Annual Report and Accounts

digital Group plc

GOVERNANCE

Directors' Report

(continued)

C ncl i n

The Directors have reviewed digital's going concern position taking account of its current business activities, financial forecasts and factors likely to affect its future financial position, as set out in this Annual report which include digital's objectives, policies and processes for managing its capital and its financial risk management objectives. Considering the global coronavirus COVID- pandemic, the global economic uncertainties and impact on delayed sales cycles, the Directors have undertaken an elevated

scrutiny to the cashflow forecasts covering a period of at least months from the date of approval of the financial statements.

Cashflow forecasts have been prepared based on a range of scenarios including, but not limited to, no further debt or equity funding, existing customer churn, no new contracted sales revenue and cost reductions.

Having assessed the sensitivity analysis on cashflows including the funding of m and the security of the newly agreed credit facility, together with the significant current business momentum from new customers such as Triller, the launch of eMusic Live and growing demand for streaming and digital music solutions, the Directors strongly believe digital will continue to operate as a going concern for the foreseeable future, being months from their signing of their financial statements.

Environmental policy

In appreciating the importance of good environmental practice, the Group seeks to ensure that its operations cause minimum detrimental impact on the environment. The Group's objective is to comply with all relevant environmental legislation and to promote effective environmental management throughout its businesses.

Policy and practice on payment of creditors

Each Group Company is responsible for agreeing the details of terms and conditions relating to transactions with its suppliers where goods and services have been supplied in accordance with the relevant terms and conditions of the contract. Trade creditors

Directors' statement as to the disclosure of information to the auditor

Each of the persons who is a director at the date of approval of this annual report confirms that:

• so far as the directors are aware, there is no relevant audit information of which the Group's auditor is unaware; and
• the directors have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that the Group's auditor is aware of that information.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare Group and Parent Company financial statements for each financial year. Under that law, the directors are required to prepare Group financial statements in accordance with International Financial Reporting Standards IFRS as adopted by the European Union and Article of the IAS Regulation and have elected to prepare the Parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice United Kingdom Accounting Standards and applicable law . The Parent Company financial statements are required by law to give a true and fair view of the state of affairs of the Company. Under company law, the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the Group financial statements, International Accounting Standard requires that directors:

• properly select and apply accounting policies;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
• provide additional disclosures when compliance with the specific requirements in IFRS are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity s financial position and financial performance; and
• make an assessment of the Company's ability to continue as a going concern.

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GOVERNANCE

Directors' Report

(continued)

In preparing the Parent Company financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure

that the financial statements comply with the Companies Act . They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Approved by the Board of Directors and signed on behalf of the Board,

Mark Foster

Director

Lower Lock, Water Lane, London, NW JZ

September

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Governance

Corporate Governance Statement

For the purposes of AIM Rule , the recognised corporate governance code that the Board has decided to apply is the Quoted

Companies Alliance Corporate Governance Code 'QCA Code' . The Board believes the QCA Code provides the most

appropriate framework of governance arrangements for the Company, considering the size and stage of development of the Company's business. The following information is provided to explain how the Company complies with the QCA Code.

The Board supports the principles and aims of the Code and intends to ensure that the Group observes the provisions of the Code as it grows, as far as is practical.

directors, one non-executive director and one independent non-executive director. Short biographies of each director are set out

Tamir Koch, the Chair, is not considered by the Board to be independent by virtue of the fact that he is Executive Chair of Triplay Inc. which is a substantial shareholder. David Lazarus is not considered by the Board to be independent by virtue of the fact that he is Executive Chair of Magic Investments SA which is a substantial shareholder.

Board Role

The chair is responsible for the leadership of the Board, ensuring its effectiveness in all aspects of its role and setting its agenda. The chair also ensures that the directors receive accurate, timely and clear information and that there is effective communication with shareholders. The chair also facilitates the effective contribution of the other non-executive directors and ensures constructive relations between executive and non-executive directors. The Chief Executive's responsibilities are concerned with managing the Group's business and implementing Group strategy.

The Board's role is to provide entrepreneurial leadership of digital within the framework of prudent and effective controls that enable risk to be assessed and managed. The Board is responsible for setting the Company's strategic aims and for ensuring the financial and human resources are in place for the Company to meet its objectives and to review management performance. The Board is also responsible for setting the Company's values and standards and ensuring that its obligations to its shareholders are understood and met. The Board dispatches its role by holding regular meetings, at which:

• the monthly management accounts, including budgets and prior year comparatives, are reviewed;
• strategy is set and policy is debated;
• all significant investment and acquisition opportunities are reviewed and, if appropriate, approval is given; and
• any proposed changes to internal control and operating policies are debated.

Skills and Expertise

The non-executive directors bring a wide range of experience and expertise to the Group's affairs, which allow them to constructively challenge and help develop proposals and strategy, scrutinise performance and controls and take decisions objectively in the interests of the Group.

Strategy and Corporate Governance

An updated description of the Company's business model is provided in the strategic report and is included in this report at pages to . The Company's Board composition and the areas of skill and expertise detailed above have been designed to support the

Company's next stage of growth.

The Board is responsible for maintaining a sound system of internal control to safeguard shareholders' investments and the Company's assets. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against material misstatement or loss. The Board has considered the need for an internal audit function and has concluded that the internal control systems in place are appropriate for the size and complexity of the Company.

The Board is also responsible for the identification and evaluation of major risks faced by the Group and for determining the appropriate course of action to manage those risks. The Board has put in place the procedures necessary to implement and comply with the guidance; Internal Control: Guidance for Directors as issued by the Financial Reporting Council Revised . The directors performed an informal review of the Group's control systems during the financial year.

digital Group PLC Annual Report and Accounts

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Governance

Corporate Governance Statement

(continued)

The Group carries insurance to indemnify directors for claims made against them in relation to their duties, with the exception of

Board Evaluation and Re-election

Procedures around performance evaluation of the Board are conducted informally while individual director evaluation is conducted formally by the chair. The Board continues to evaluate the current balance of skills and determine whether the Board composition is appropriate for the business, and in order to propel the Company to further growth as anticipated. Progress as to this process will be reported in due course to shareholders, and further updates provided.

One-third of the directors must retire from office by rotation at each annual general meeting AGM and all directors appointed since the date of the last AGM must put themselves forward for re-election.

In addition, there were a number of informal meetings of the Board.

The Company has adopted the Market Abuse Regulation for Directors' dealings as applicable to AIM companies.

The Executive Directors are full time employees and the Non-Executive Directors are required to devote sufficient time to discharge the duties of their office.

Financial reporting

The Board places considerable emphasis on ensuring that all communications with shareholders present a balanced and transparent assessment of the Group's position and prospects. The Board or a subcommittee of the Board reviews and approves results announcements, interim reports, annual reports, the chair's AGM statement and trading updates prior to their release. The

Committees of the Board

The Board has two standing committees, being the Audit Committee and the Remuneration Committee each of which operates within defined terms of reference.

digital Group PLC Annual Report and Accounts

digital Group plc

Governance

Corporate Governance Statement

the Group; reviewing the Group's internal financial controls; ensuring that the financial performance of the Group is properly measured and reported on; and for reviewing reports from the Group's auditor relating to the Group's accounting and internal financial controls. The Chief Financial Officer and other senior management also attend committee meetings by invitation. The Committee has unrestricted access to the Company's auditor. The Audit Committee met formally three times during the period. The Committee reviews arrangements by which staff of the Company may raise in confidence concerns about improprieties in matters of financial reporting or other matters and investigates appropriate follow-up action.

The Audit Committee recommends to the Board the appointment, re-appointment or removal of the external auditor. During the Audit Committee made the decision to re-engage BDO for a third year of service.

Relations with shareholders

The Company recognises that shareholder support is instrumental in the future growth of the Company. The Board is committed to maintaining and further developing communications with shareholders. The Chief Executive and Chairman maintained a regular dialogue with institutional shareholders throughout the year, with further opportunities for shareholder contact during the presentation rounds prior to the cash fundraise. In addition, the executive directors give presentations to analysts and hold one- to-one formal meetings with the Group's key shareholders immediately following the announcement of the Group's full year and interim results. The Group obtains independent feedback on these meetings through its corporate brokers, and this feedback is disclosed to the Board.

The Company responds formally to all queries and requests for information from existing and prospective shareholders. In addition, the non-executive directors are available to shareholders to ensure that any potential concerns can be raised directly. The Group's Annual Report and Accounts, final and interim announcements, trading statements and press releases are available on its website at about. digital.com.

Further, the Company has invested in shareholder analysis by analysts Orient Capital to enable further shareholder outreach and dialogue.

Constructive use of the AGM

The Board uses the Annual General Meeting to communicate with both institutional and private shareholders. Resolutions are proposed on each substantially separate issue and the agenda includes a resolution to adopt the Group's Annual Report and Accounts. Details of the proxy votes for and against each resolution are announced after the result of the hand votes is known. Before the formal business of the AGM is undertaken, the Chair invites shareholders' questions to the Board.

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Governance

Directors' Remuneration Report

As an AIM-listed company, digital Group plc is not required to disclose a Directors' Remuneration Report; however, the Company has opted to make a voluntary disclosure.

Remuneration Committee

The Board has established a Remuneration Committee with formally delegated duties and responsibilities. The Remuneration

Committee consists of Mark Foster, as chairman, Tamir Koch and Helen Gilder appointed February . The provisions of the QCA Code recommend that as Company Chairman, Tamir Koch, should not be a member of the Committee. However, it was considered that Tamir's experience and knowledge is of considerable value to the Committee and as a result he has been appointed a member of the Committee. The Remuneration Committee has responsibility for determining executive directors' terms and conditions of service, including remuneration and grant of options under the Share Option Schemes.

Remuneration policy for executive directors

The Company's policy on executive director remuneration is to:

• Attract and retain high-quality executives by paying competitive remuneration packages relevant to each director's role, experience and the external market; and
• Incentivise directors to maximise shareholder value through share options and the payment of an annual bonus.

digital Group PLC Annual Report and Accounts

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Governance

Directors' Remuneration Report

The Company has established a tax efficient EMI option scheme, an "unapproved" share option scheme and a French Share Award Scheme pursuant to which the CEO, CFO and other members of staff have been or may be granted share options. Options granted under these schemes have a vesting schedule and for Senior Management, performance criteria are defined.

The number, exercise price and earliest and latest dates of exercise of options over ordinary shares in the Company held by Directors at the end of the year were as follows:

attached to these options. Of these options granted, the table below shows the options issued, exercised, lapsed or forfeited during

digital Group PLC Annual Report and Accounts

digital Group plc

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF DIGITAL GROUP PLC

Opinion

We have audited the financial statements of digital Group plc the 'parent company' and its subsidiaries the 'group' for the year

ended December which comprise the consolidated income statement and statement of comprehensive income, the

consolidated statement of financial position, the consolidated cash flow statement, the consolidated statement of changes in equity, the parent company statement of financial position, the parent company statement of changes in equity and notes to the financial statements, including a summary of significant accounting policies.

The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting

Standards, including Financial Reporting Standard Red ced Di cl e F ame k United Kingdom Generally Accepted Accounting Practice .

In our opinion:

• the financial statements give a true and fair view of the state of the group's and of the parent company's affairs as at

• the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing UK ISAs UK and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

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INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF DIGITAL GROUP PLC

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which the ISAs UK require us to report to you where:

• the Directors' use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
• the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group or the parent company's ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement whether or not due to fraud we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

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INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF DIGITAL GROUP PLC

digital Group PLC Annual Report and Accounts

digital Group plc

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF DIGITAL GROUP PLC

digital Group PLC Annual Report and Accounts

digital Group plc

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF DIGITAL GROUP PLC

Our application of materiality

We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. For planning, we consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.

Ma e iali

Materiality for the group as a whole was set at k : k , which represents : of group revenue. For the Group,

revenue provides a consistent year on year basis for determining materiality due to the group making losses each year and has been determined to be the most relevant performance measure to the stakeholders of the group.

Materiality for the parent company was set at k : k , which represents : of adjusted expenditure :

revenue . The basis for materiality has been amended as the parent company is no longer a trading entity and is purely the holding company for the group.

Pe f mance Ma e iali

Based upon our assessment of the risks within the group and the group's control environment, performance materiality for the group

We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion.

An overview of the scope of our audit

Our group audit was scoped by obtaining an understanding of the group and its environment, including the group's system of internal control, and assessing the risks of material misstatement in the financial statements at the group level.

In determining the scope of our audit we considered the size and nature of each component within the group to determine the level of work to be performed at each in order to ensure sufficient assurance was gained to allow us to express an opinion on the financial statements of the group as a whole.

We obtained an understanding of the internal control environment related to the financial reporting process and assessed the appropriateness, completeness and accuracy of group journals and other adjustments performed on consolidation.

The group consists of six trading entities. Four of the trading entities, one being the holding company, are based in the UK and were considered significant components for the purposes of our audit. Full scope audits were performed for these entities. Further to this there are two non-significant trading entities, one within the US and one in France as well as other non-trading entities for which analytical procedures were performed. All audit procedures were performed by the group audit team. The significant components

digital Group PLC Annual Report and Accounts

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INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF DIGITAL GROUP PLC

Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report and accounts other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act

In our opinion, based on the work undertaken in the course of the audit:

• the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
• the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
• the parent company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of directors' remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.

Responsibilities of directors

As explained more fully in the statement of directors' responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group's and the parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs UK will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities.This description forms part of our auditor's report.

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INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF DIGITAL GROUP PLC

Use of our report

This report is made solely to the parent company's members, as a body, in accordance with Chapter of Part of the Companies

Act . Our audit work has been undertaken so that we might state to the parent company's members those matters we are

required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the parent company and the parent company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Nicole Martin Senior Statutory Auditor

For and on behalf of BDO LLP, Statutory Auditor

London, UK

September

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CONSOLIDATED INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME Year ended December

The notes from pages to form part of the financial statements.

digital Group PLC Annual Report and Accounts

digital Group plc

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

December

digital Group PLC Annual Report and Accounts

digital Group plc

CONSOLIDATED CASHFLOW STATEMENT

Year ended December

digital Group PLC Annual Report and Accounts

digital Group PLC Annual Report and Accounts

digital Group plc

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Year ended December

The notes from pages to form part of the financial statements.

digital Group PLC Annual Report and Accounts

digital Group plc

NOTES TO THE FINANCIAL STATEMENTS

Year ended December

• Accounting policies
  General information

digital Group plc is a public company, limited by shares and incorporated in the United Kingdom England and Wales under

The Group prepares its consolidated financial statements in accordance with International Financial Reporting Standards "IFRS" as adopted by the EU. The financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments. The principal accounting policies set out below have been consistently applied to all the periods presented in these financial statements; except as stated below.

The financial information contained in these results has been prepared using the recognition and measurement

requirements of International Financial Reporting Standards IFRSs as adopted by the EU. The accounting policies adopted

in these results have been consistently applied to all the years presented and are consistent with the policies used in the

reassessed. The definition of a lease under IFRS was applied only to contracts entered into or changed on or after

January .

b New standards, interpretations and amendments not yet effective.

There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that the group has decided not to adopt early. The most significant of these is:

Revised Conceptual Framework for Financial Reporting

New and amended standards and Interpretations issued by the IASB that will apply for the first time in the next annual financial statements are not expected to impact the Group as they are either not relevant to the Group's activities or require accounting which is consistent with the Group's current accounting policies.

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NOTES TO THE FINANCIAL STATEMENTS Year ended December

• Accounting policies (continued)
  Going concern

capital requirements of the Group and support immediate and medium term commercial growth opportunities, in particular within home fitness, artist monetisation, and social media.

Backg nd and ea n f he lacing and b c i i n

The music industry is undergoing a period of change and opportunity whereby revenue sources are changing. and growing. Whereas five years ago revenues were dominated mainly by music sales and live performances, today streaming has

displaced download music sales and COVID- has shut down live performances for much of and is likely to continue

to impact live performances in the medium term. In addition, as music streaming has gained in popularity, music listening on social video platforms has begun to outpace DSP streaming services.

digital has an advanced, scalable, cloud-based platform and the Directors believe that the Company is positioned to take advantage of new sources of growth brought on by the changing industry as well as the new opportunities and models accelerated by the COVID- pandemic. This is supported by a number of renewals and new contracts over the last year,

including with Triller, eMusic and a global technology company in August . In particular digital has identified potentially significant emerging opportunities within social media, home fitness and artist monetisation channels.

COVID

In March , the World Health Organisation declared a global pandemic due to the COVID- virus that has spread across the globe, causing different governments and countries to enforce restrictions on people movements, a stop to international travel, and other precautionary measures. This has had a widespread impact economically and a number of industries have been heavily impacted. This has resulted in impacts on certain industries and a more general need to consider whether budgets and targets previously set are realistic in light of these events.

or Brexit, created volatility in the global financial markets. The UK now enters a transition period, being an intermediary arrangement covering matters like trade and border arrangements, citizens' rights and jurisdiction on matters including

this date, negotiations are ongoing to determine and conclude a formal agreement between the UK and EU on the aforementioned matters.

The Group operates subsidiaries in many countries. The Directors currently deem that the effects of the UK's current transitional period outside the EU and the impact of ongoing discussions with the EU will not have a significant impact on the Group's operations due to the global geographical footprint of the business and the nature of is operations.

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NOTES TO THE FINANCIAL STATEMENTS

Year ended December

• Accounting policies (continued)

C ncl i n

The Directors have reviewed digital's going concern position taking account of its current business activities, financial

forecasts and factors likely to affect its future financial position, as set out in this Annual report which include digital's objectives, policies and processes for managing its capital and its financial risk management objectives. Considering the

global coronavirus COVID- pandemic, the global economic uncertainties and impact on delayed sales cycles, the

Directors have undertaken an elevated scrutiny to the cashflow forecasts covering a period of at least months from the date of approval of the financial statements. Cashflow forecasts have been prepared based on a range of scenarios including, but not limited to, no further debt or equity funding, existing customer churn at different churn rates, no new contracted sales revenue, delayed sales, cost reductions, both limited and extensive, and a combination of these different outcomes.

Having assessed the sensitivity analysis on cashflows including the funding of m and the security of the newly agreed credit facility, together with the significant current business momentum from new customers including Triller, the launch of eMusic Live and growing demand for streaming and digital music solutions, the Directors strongly believe digital will

Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at

December .

All subsidiaries are controlled by the Group and are included in the consolidated financial statements; the Group controls an investee if, and only if, the Group has:

• Power over the investee i.e., existing rights that give it the current ability to direct the relevant activities of the investee
• Exposure, or rights, to variable returns from its involvement with the investee
• The ability to use its power over the investee to affect its returns.

Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

• The contractual arrangement s with the other vote holders of the investee
• Rights arising from other contractual arrangements
• The Group's voting rights and potential voting rights.

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.

Profit or loss and each component of OCI are attributed to the equity holders of the parent of the Group and to the non- controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group's accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If the Group loses control over a subsidiary, it derecognises the related assets including goodwill , liabilities, non- controlling interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.

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NOTES TO THE FINANCIAL STATEMENTS

Year ended December

• Accounting policies (continued)
  Business combinations
  The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred In the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase Is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except If related to the issue of debt or equity securities.
  The consideration transferred does not include amounts related to the settlement of pre-exlstlng relationships, such amounts are generally recognised In profit or loss.
  Any contingent consideration payable is measured at fair value at the acquisition date, if an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognised In profit or loss.
  Subsidiaries
  Subsidiaries are entitles controlled by the Group, the Group controls an entity when it is exposed to, or has rights to, variable returns from its Involvement with the entity and has the ablity to affect those returns through its power over the entity. The financial statements of subsidiaries are included In the consolidated financial statements from the date on which control commences until the date on which control ceases.
  Loss of control
  When the Group loses control over a subsidiary, it de-recognlses the assets and liabilities of the subsidiary, and any non- controllng interests and other components of equity. Any resulting gain or loss is recognised in the profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.
  Transactions eliminated on consolidation
  Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group s interest in the investee. Unrealised losses are eliminated In the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
  Revenue
  The group comprises of mainly three types of revenues Licencing fees also known as B B sales
• 1. Setup Fees
  2. Monthly development and support fees
  3. Usage fees

Content "download" revenues also know as B C sales

Creative revenues

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NOTES TO THE FINANCIAL STATEMENTS

Year ended December

• Accounting policies (continued)

Each type of revenue is detailed below

Revenue comprises of:

I Licen ing e en e

digital defines licensing revenues as fees earned both for access to the company's platform and for development work on that platform in order to adapt functions to customer needs. The Board considers that the provision of Technology Licensing Services comprises three separately identifiable components:

The description of the licence fees compromise three categories;

• Set up fees Set up fees which grant initial access to the platform, allow use of our catalogue and associated metadata and mark the start of work to define a client's exact requirements and create the

detailed specifications of a service.

• Monthly development and support fees which cover the costs of developer and customer support time. These are usually fixed and are paid monthly once a service has been specified in detail; they are calculated at commercial rates based on the number of developer or support days required.
  Usage fees which cover certain variable costs like bandwidth which can be re-charged to clients with an administrative margin are recognised at point in time based on usage.

II C n en d nl ad e en e

Content revenues are recognised at the value of services supplied and on delivery of the content. The group manages a number of content stores and the income is recognised in the month it relates to. Majority of the revenue converts directly to cash; any accrued revenue converts to trade receivables within days.

III C ea i e e en e

Creative revenues relate to the sale of programmes and other content. digital also undertakes bespoke radio programming for its customers. As the programmes are being created the associated revenue is accrued/deferred until such time as the programme is delivered and accepted by the client. At this time the accrued revenue coverts to trade receivables. These mainly include the production of weekly radio programmes, as well as the one-off production of episodes. In case of one-off productions which required the Group to provide progress reports to its customers and where the company has no alternative use of the program produced, the group recognises revenue over the period i.e. based on percentage of completion, for

the rest of the regular programs and contents, where the company does not own the IP, the group measures the revenue based on delivery of the content i.e. at a point in time.

Many of the Group s contracts include a variety of performance obligations, including Licencing revenue set-up fees, monthly revenue for using digital's API licence platform and usage fees , however may not be distinct in nature. Under IFRS , the Group evaluates the segregation of the agreed goods or services based on whether they are distinct . If both the customer benefits from them either on its own or together with other readily available resources, and it is separately identifiable within the contract.

To determine whether to recognise revenue, the Group follows a -step process:

• Identifying the contract with customers
• Identifying the performance obligations
• Determining the transaction price
• Allocating the transaction price to the performance obligations
• Recognising revenue when/ as performance obligations are satisfied.

Pe f mance Obliga i n and iming f e en e ec gni i n

Revenue generated from B B customer contracts often identify separate goods/services, with these generally being the access of the API license platform, and the associated monthly licence maintenance fees and content usage fees.

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NOTES TO THE FINANCIAL STATEMENTS

Year ended December

• Accounting policies (continued)
  The list of obligations as per the contract that are deemed to be one performance obligation in case of licencing revenue are B B :

• The development and support fees which cover the costs of developer and customer support time
• Usage fees which cover certain variable costs like bandwidth and content.

A key consideration is whether licencing fees give the customer the right to use the API Licence as it exists when the licence is granted, or access to API which will, amongst other considerations, be significantly updated during the API licence period.

The group grants the customer a limited, revocable, non-exclusive and non-transferable licence in the Territory during the Term, to use the digital API and the content to enable the provision of the Music Service to the End Users via Application.

Set-up fees represent an obligation under the contract, which is not a distinct performance obligation, as the customer is not able to access the platform without them. These are therefore spread over the period of the contract agreed initially with the customers.

Monthly licence maintenance fees indicate service contracts that provide ongoing support over a period of time. Revenue is recognised over the term of the contract on a straight-line basis.

In the case of Creative Revenue, the sole performance obligation is to deliver the content specified as per contract, whether this be the delivery of regular content throughout the year e.g. a radio series , or the production of a longer, one-off episode.

The only obligation for the group is to deliver the content production agreed in the contract. Control and risks are passed to the customer on delivery of the episode produced, news bulletins etc. The right to the IP varies from project to project. If the customer suggests a specific programme idea to tender, they will then own the underlying rights of the recordings and the IPR is exclusive to customer; digital's only performance obligation would be to produce the content.

In the case of one-off productions for an identifiable customer contract where digital is required to update the client on the progress of work completed, the Group applies an output method to determine the stage of completion and amount of revenue to recognize.

Payment terms vary depending on the specific product or service purchased. With licence fees, the set-up fees element is invoiced and paid upfront, while monthly maintenance revenues and usage fees are normally invoiced on a monthly basis. In the case of download sales, the cost is paid immediately by the customer upon download of the music/songs content

from the digital platform. In the case of creative revenues, the payment terms are generally on signing with the balance on delivery. All contracts are subject to these standard payment terms, to the extent that the parties involved expressly agree in writing that the conflicting terms of any agreement shall take precedence.

In the case of fixed-price contracts, the customer pays the fixed amount based on a monthly schedule. If the services rendered by the company exceed the payment, a contract asset Accrued Income is recognised; if the payments exceed the services rendered, a contract liability Deferred Revenue is recognised.

De e mine an ac i n ice and all ca ing each e f mance bliga i n

The transaction price for licencing fees set-up fees and monthly licence fee is fixed as per contract and is explicitly noted in the contract. In the case of usage fees, the per gigabyte fee is determined and agreed in the contract. In the case of creative revenue, the transaction fees for radio services and one-off series is determined by taking into account the length of the production this may vary for commercials, radio programs, tv shows, series, etc. . Any variations in transaction price are agreed and charged additionally depending on the obligations to be performed. None of the five factors i.e. variable consideration, constraining estimates of variable consideration, the existence of a significant financing component in the contract, non-cash consideration, and consideration payable to a customer identified are particularly relevant to digital's customer contracts. The transaction price included in digital's contracts is generally easily identifiable and is for cash consideration.

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NOTES TO THE FINANCIAL STATEMENTS

Year ended December

• Accounting policies (continued)
  Other adjusting items
  Other adjusting items are those items the Group considers to be non-recurring or material in nature that should be brought to the readers' attention in understanding the Group's financial statements. Other adjusting items consist of one-off acquisition costs, costs related to non-recurring legal and statutory events, restructuring costs and other items which are not expected to re-occur in future years.
  Foreign currency
  For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in Pounds Sterling, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.
  In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency foreign currencies are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
  Exchange differences arising on the settlement of monetary items and on the retranslation of monetary items, are included in profit and loss for the year.
  For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average monthly rate of exchange ruling at the date of the transaction, unless exchange rates fluctuate significantly during that month, in which case the exchange rates at the date of transactions are used.
  Intangible assets
  Externally acquired intangible assets are initially recognised at cost and subsequently amortised on a straight-line basis over their useful economic lives.
  Intangible assets are recognised on business combinations if they are separable from the acquired entity or give rise to contractual/legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate valuation techniques.
  Intangible assets Bespoke Applications arising from the internal development phase of projects is recognised if, and only if, all of the following have been demonstrated:
• • The technical feasibility of completing the intangible asset so that it will be available for use or sale
  • The intention to complete the intangible asset and use or sell it
  • The ability to use or sell the intangible asset
  • How the intangible asset will generate probable future economic benefits
  • The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
  • The ability to measure reliably the expenditure attributable to the intangible asset during its development.

The amount initially recognised for internally generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally generated intangible asset can be recognised, development expenditure is charged to profit or loss in the period in which it is incurred.

Internally generated intangible assets are amortised over their useful economic lives on a straight-line basis, over years.

Property, plant and equipment

Items of property, plant and equipment are initially recognised at cost. As well as the purchased price, cost includes directly attributable costs and the estimated present value of any future unavoidable costs of dismantling and removing items. The corresponding liability is recognised within provisions.

digital Group PLC Annual Report and Accounts

digital Group plc

NOTES TO THE FINANCIAL STATEMENTS

Year ended December

• Accounting policies (continued)

Depreciation is provision on all items of property, plant and equipment, so as to write off their carrying value over their expected useful economic lives. It is provided at the following rates:

Impairment of tangible and other intangible assets

Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial year end. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount i.e. the higher of value in use and fair value less costs to sell , the asset is written down accordingly.

Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the smallest group of assets to which it belongs for which there are separately identifiable cash flows; its cash generating units CGUs . Goodwill is allocated on initial recognition to each of the Group s CGUs that are expected to benefit from a business combination that gives rise to the goodwill.

Impairment charges are included in profit or loss, except to the extent they reverse gains previously recognised in other comprehensive income. An impairment loss recognised for goodwill is not reversed.

Cash and cash equivalent

Cash and cash equivalents comprise cash on hand and demand deposits and other short-term, highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Government grants

Government grants, including research and development credits are recognised when it is reasonable to expect that the grants will be received and that all related conditions will be met, usually on submission of a valid claim for payment. Grants of a revenue nature are credited to income so as to match them with the expenditure to which they relate.

Financial instruments

Financial assets and financial liabilities are recognised when a Company becomes a party to the contractual provisions of the instruments.

Ini ial Rec gni i n

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities other than financial assets and financial liabilities at fair value through profit or loss and ancillary costs related to borrowings are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are charged to the Statement of Profit and Loss over the tenure of the financial assets or financial liabilities.

Cla ifica i n and S b e en Mea emen Financial A e

The Company classifies financial assets as subsequently measured at amortised cost, Fair Value through Other Comprehensive Income "FVOCI" or Fair Value through Profit or Loss "FVTPL" on the basis of following:

the entity's business model for managing the financial assets and the contractual cash flow characteristics of the financial asset.

Am i ed C

A financial asset shall be classified and measured at amortised cost if both of the following conditions are met:

the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and

the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

digital Group PLC Annual Report and Accounts

digital Group plc

NOTES TO THE FINANCIAL STATEMENTS

Year ended December

• Accounting policies (continued)

In case of financial assets classified and measured at amortised cost, any interest income, foreign exchange gains or losses and impairment are recognised in the Statement of Profit and Loss.

Fai Val e h gh OCI